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Does Cash Flow Cause Investment and R&D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms


  • Hall, Bronwyn H.
  • Mairesse, Jaques
  • Branstetter, Lee
  • Crepon, Bruno


The role of financial institutions and corporate governance in the conduct and performance of industrial firrm, especially in the area of technological innovation and international competition has been hotly debated in the recent past. The results presented here are a contribution to the empirical evidence on the behavior of individual firms that exist in somewhat different institutional environments. Using a Panel Data version of the Vertor Auto Regressive (VAR) methodology, we test for causal relationship among sales and cash flow on the one hand and investment and R and D on the other, using three large panels of firms in the scientific (high technology) sectors in the United States, Rance, and Japan. Our findings are that both invest- ment and R and D are more highly sensitive to cash flow and sales in the United States than in Rance and Japan. Correspondingly, both investment and R and D predict both cash flow and sales positively in the United States, while the impact is somewhat more mixed in the other countries.
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  • Hall, Bronwyn H. & Mairesse, Jaques & Branstetter, Lee & Crepon, Bruno, 1998. "Does Cash Flow Cause Investment and R&D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms," Department of Economics, Working Paper Series qt11v204tz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:econwp:qt11v204tz

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    References listed on IDEAS

    1. Zvi Griliches, 1998. "R&D and Productivity Growth: Comparing Japanese and U.S. Manufacturing Firms," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 187-210 National Bureau of Economic Research, Inc.
    2. Zvi Griliches, 1998. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 157-186 National Bureau of Economic Research, Inc.
    3. Jacques Mairesse & Alan K. Siu, 1984. "An Extended Accelerator Model of R&D and Physical Investment," NBER Chapters,in: R&D, Patents, and Productivity, pages 271-298 National Bureau of Economic Research, Inc.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Pesaran, M. H. & Shin, Y. & Smith, R. P., 1997. "Pooled Estimation of Long-run Relationships in Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9721, Faculty of Economics, University of Cambridge.
    6. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-429, May.
    7. Crepon, Bruno & Kramarz, Francis & Trognon, Alain, 1997. "Parameters of interest, nuisance parameters and orthogonality conditions An application to autoregressive error component models," Journal of Econometrics, Elsevier, vol. 82(1), pages 135-156.
    8. W. Carl Kester, 1992. "Governance, Contracting, And Investment Horizons: A Look At Japan And Germany," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(2), pages 83-98.
    9. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    10. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
    11. Alexander, Ian & Mayer, Colin, 1990. "Banks and Securities Markets: Corporate Financing in Germany and the UK," CEPR Discussion Papers 433, C.E.P.R. Discussion Papers.
    12. Bronwyn H. Hall & Jacques Mairesse, 2000. "Univariate Panel Data Models and GMM Estimators: An Exploration Using Real and Simulated Data," Econometric Society World Congress 2000 Contributed Papers 1114, Econometric Society.
    13. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, vol. 65(1), pages 263-293, January.
    14. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
    15. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    More about this item


    investment; R&D; panel data; international comparisons; cash flow; firm-level; Business; Social and Behavioral Sciences; Technology and Innovation;

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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